In India, Growth Data Served Chinese-Style

A Mumbai brokerage tracks car sales and power consumption What the GDP data are saying “doesn’t quite add up”

Indian economists have adapted Chinese Premier Li Keqiang’s approach to figuring out economic growth, which involves scrutinizing data from various industries instead of relying on the official figure for gross domestic product. The picture painted by what the Indians are calling the Keqiang index is more downbeat than the official data from Delhi, which started using a new way to calculate GDP in January.

When he was a regional official in China, Li examined electricity consumption, rail cargo volumes, and loan disbursements to take the pulse of the economy. He told U.S. ambassador Clark Randt in March 2007 that such data captured the reality of growth better than “man-made” GDP, according to classified documents published on WikiLeaks. Mumbai-based stock brokerage Ambit Capital introduced a Keqiang-inspired index in September, when doubts over the reliability of India’s GDP figures were increasing. The government’s numbers showed the country’s economy outpacing China’s. Says Ambit analyst Ritika Mankar Mukherjee, who worked on the firm’s Keqiang index, “The GDP data is telling you something that doesn’t quite add up. Everything you know from corporate captains, from corporate management, from the government machinery, is telling you that the economy is slowing down.”

Ambit’s Keqiang index combines motor vehicle sales, power consumption, capital goods imports, and cargo handled at airports to capture private consumption and investment demand. The index shows the growth of motor vehicle sales decelerating to 0.5 percent last quarter, from 2.4 percent over the previous three months.

Although the government reported that the overall year-over-year growth rate had accelerated to 7.4 percent in the three months through September, from 7 percent in the prior quarter, Ambit estimates a deceleration to 6 percent, from 6.3 percent. A top government economic adviser, Arvind Subramanian, in a Dec. 18 press conference defended the independence of the statistics office while acknowledging the uncertainty economists and investors feel about the official measurement of GDP.

Ambit says the slowdown reflects Prime Minister Narendra Modi’s efforts to break India’s dependence on the old

growth model. “You’ll have smaller subsidies coming from the central government, you’ll have a smaller black economy, and you’ll have crony capitalism curtailed to some extent,” Mukherjee says. “While each of these resets will be very positive for the country from a long-term perspective, all of this in the short term is extremely negative for GDP growth.”

The bottom line The government says India’s economy grew 7.4 percent last quarter, but actual business activity suggests otherwise.